Retail inflation eased to a five-month low and fell to 5.05 per cent in August from 6.07 per cent in July, raising hopes for an interest rate cut in October when the Reserve Bank of India’s new Governor Urjit Patel presents his first policy review. The inflation dipped mainly because food prices stabilised; however, index of industrial production (IIP) growth contracted to 2.4 per cent from 1.95 per cent in July as manufacturing output fell 3.4 per cent, according to the Government data released on Monday.
The RBI has set a target of 5 per cent of retail inflation by March 2017. Former RBI Governor Raghuram Rajan, whose tenure ended on September 4, left interest rates unchanged last month, flagging upside risks to the inflation target.
Enthused by moderation in retail inflation, the Finance Ministry expressed hope that the RBI will take into account improvement in the price situation while deciding on rate cut in its next policy review due in October.
“With regard to the rate cut, there is a direct relationship between the inflation figures and policy rates of the RBI. So, inflation has moderated as expected. I would, therefore, expect the RBI to take this into consideration and take its call. I am sure they will consider all the aspects and take a call,” Economic Affairs Secretary Shaktikanta Das told reporters here.
The rate of price growth, based on the consumer price index (CPI), was the lowest since March 2016 when it stood at 4.83 per cent. In the preceding month July, CPI inflation was at a nearly two-year high of 6.07 per cent. In August 2015, the rate of price rise was 3.74 per cent. “lower inflation in vegetables in August helped as the rate of price rise stood at a mere 1.02 per cent against 14.06 per cent in July,” the data showed.
Similarly, food and beverage prices remained sticky as they grew 5.83 per cent in August in comparison to 7.96 per cent in July. However, the overall consumer food inflation in August fell to 5.91 per cent as against 8.35 per cent in July.
On industrial output front, it was contracted by 2.4 per cent in July registering the worst performance in eight months mainly on account of declining output in manufacturing and capital goods sectors. On cumulative basis, the factory output in April-July declined by 0.2 per cent compared to 3.5 per cent growth in the year-ago period. “The previous low was witnessed in November last year when the factory output shrunk by 3.4 per cent. Factory output had grown by 4.3 per cent in July last year,” the data added.
Meanwhile, industrial production growth for June was revised downward to 1.95 per cent from 2.1 per cent provisional estimates released last month. The official data showed that the manufacturing sector that constitutes over 75 per cent of the IIP index, declined by 3.4 per cent in July compared to 4.8 per cent growth a year ago. In terms of industries, 12 out of 22 industry groups in the manufacturing sector showed negative growth in July.